In Depth: Internet sales tax back on the table

Supreme Court action could mean green light for online add-on

Dec. 29, 2013

Paul Sakuma/AP file photo

Written by

Russ Zimmer

CentralOhio.com

By the numbers

1 percent Percent of Ohio taxpayers who reported online purchases free of sales tax, in accordance with the law, on their 2012 state income taxes 5.75 percent Ohio’s state sales tax rate, on which each county assesses at least 1 additional percentage point $628.6 million Sales tax revenue that Ohio and county governments missed out on because of online shopping in 2012 fiscal year $163.8 billion Sales revenue by e-commerce retailers in 2011 Sources: Ohio Department of Taxation, National Conference of State Legislatures, U.S. Census Bureau

Tax on digital products starts Jan. 1

Electronic versions of movies, books and songs purchased and downloaded online from iTunes or Amazon (or rented from streaming services such as Hulu or Netflix) will soon be subject to the state sales tax. Those changes were enacted in the state budget and align Ohio with the standards of the Streamlined Sales Tax Governing Board, which is a group of states working toward uniformity in sales tax administration. Similar to their physical counterparts — a CD, DVD or paperback — online merchants will only be required to collect sales tax if they have a physical presence in the state. Otherwise, it will be up to the consumer to pay taxes on the purchase directly to the state.

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Inaction by Congress and a recent decision by the nation’s highest court to not touch the issue have reopened the debate on forcing Internet retailers to collect Ohio’s sales tax.

On Dec. 2, which was Cyber Monday this year, the U.S. Supreme Court declined to hear a case brought by online retailers against the state of New York, which imposed a tax on Internet sales in 2008.

The decision effectively opens the door for other states, including Ohio, to pass legislation requiring every seller in the online commerce realm to collect sales tax from customers in states where they have a physical presence. This would include retailers such as Amazon.com, but it also could include small, independent operators who could be overwhelmed by the thousands of taxing districts in the U.S.

Meanwhile, the U.S. Senate in May passed the Marketplace Fairness Act, which would require online retailers of a certain size to collect sales taxes, but the bill hasn’t yet had a committee hearing in the House.

Gov. John Kasich has previously voiced his preference for a nationwide solution to the inequity between retailers down the street and those in another state pitching to Ohio shoppers through the Internet. In vetoing several items related to Internet retailers and sales tax in the latest state budget, Kasich wrote that enforcement of such provisions would result in “excessive legislation without necessarily producing an increase in state revenue.”

The language struck from the budget bill by Kasich was supported by the Ohio Council of Retail Merchants and “was similar to what the state of New York passed,” said Gordon Gough, president of the council, which has been a longtime proponent of extending the sales tax to online retailers.

The U.S. Supreme Court’s decision “does lend to a conversation with us and the administration and legislature to see where they stand on state legislation,” Gough said, adding that his members would ultimately prefer Congressional action. A spokesman for the governor told CentralOhio.com the administration was examining the implications from the court’s denial.

Speaker of the Ohio House Bill Batchelder said this month that an Internet sales tax was an issue where he wished the federal government would either pass legislation or allow the states to do so.

“With all the messes that they’ve created (in Washington, D.C.) in the last four to six years,” the Republican from Medina said after a meeting with Ohio Chamber of Commerce members, “we have kind of a right to ask them to step aside and let people that are willing to bear the heat provide the solution.”

The National Conference of State Legislatures, which supported the federal Internet sales tax proposal, estimated Ohio missed $628.6 million in tax revenue because of remote purchases, which includes catalogs as well as online shopping.

The retail merchants council predicted that Ohio’s brick-and-mortar retailers would lose $188 million in holiday sales this year to online retailers, in part because they can offer what amounts to at least a 6.75 percent discount. That’s the state sales tax rate, which increased from 5.5 percent to 5.75 percent in September, plus every county assesses between 1 and 2.25 percentage points on top of that.

The responsibility to pay sales tax for online purchases falls on the consumer in Ohio. Ohioans who purchase goods online and aren’t charged sales tax are supposed to make it right on their state income tax form, although compliance with that rule is limited. Nearly 56,000 Ohio taxpayers, or about 1 percent, did so on their 2012 tax returns, remitting about $3.3 million to the state, according to statistics from the Ohio Department of Taxation.

The 2014 legislative calendar is sure to include numerous controversial topics. Here is a look at some of the other issues expected to be debated:

Municipal income tax reform

• Bill: House Bill 5

• Summary: The bill would standardize income tax collection in Ohio’s municipalities but not change rates. Supporters say the proposed legislation would simplify filings, which often have many different rules based on the community. City officials are concerned about losing local control and revenue.

• Status: The bill, which was introduced in January, passed the Ohio House in mid-November 56-41. The vote fell mostly on party lines with all but four Republicans supporting the proposal. The bill was assigned to the Senate Finance committee, where it awaits a vote.

Stand your ground

• Bill: House Bill 203

• Summary: The proposed legislation would eliminate the need to retreat to claim self-defense when using force, also known as stand your ground. Current law does not require people to retreat when they are in their homes or vehicles. Most of the bill addresses eligibility for a concealed carry license, including limiting the number of crimes that exempt a person from a license and prohibiting dishonorably discharged veterans from obtaining one.

• Status: The bill passed the Ohio House 63-27 on Nov. 20. It was sent to the Ohio Senate, where it has not been assigned to a committee.

Heartbeat bill

• Bill: House Bill 248

• Summary: The bill would prohibit abortions after a heartbeat is detected; that can be as early as six weeks.

• Status: The proposed legislation was introduced in August and assigned to the House Health and Aging committee, where it awaits a vote.

Fracking tax

• Bill: House Bill 375

• Summary: Owners of horizontal oil and gas wells, the kind that have been popping up in eastern Ohio, would be taxed at a different rate than traditional, vertical wells. The proceeds would be used to fund an income tax cut for all Ohio taxpayers.

• Status: Unlike previous efforts to raise the severance tax, this one has the support of the industry. Kasich, whose own fracking tax proposal couldn’t get traction in the legislature, called HB 375 “just fine” earlier this month. The bill is a lower rate than the governor had proposed.

Regulating electronic cigarettes

• Bill: House Bill 144

• Summary: The bill would prohibit anyone younger than 18 from using electronic cigarettes. Opponents of the bill fear that defining e-cigarettes as “alternative nicotine products” will help them skirt the workplace smoking ban and tobacco taxes.

• Status: The bill passed the Ohio House 67-25 on Nov. 13. It was assigned to the Senate Criminal Justice committee, where it awaits a vote.

Right to work

• Bill: House Bill 151, House Bill 152, House Joint Resolution 5

• Summary: A pair of bills introduced in May would prohibit private- and public-sector employers from requiring employees to participate in unions. The joint resolution would ask voters to place similar language into the Ohio Constitution. Senate President Keith Faber has said that right-to-work legislation is not on his caucus’ agenda despite similar laws passing in Michigan and Indiana.

Redistricting

• Bill: Senate Joint Resolution 1

• Summary: The resolution would ask voters to approve changes to redistricting, including the creation of the Ohio Redistricting Commission. The commission would include the governor, state auditor, secretary of state and several people appointed by legislative leaders, including appointees by the minority party. No current General Assembly member could partake.

• Status: The Ohio House is waiting on a recommendation from the Ohio Constitutional Modernization Commission, a decennial legislative advisory group. The news service Gongwer Ohio recently reported that it appears the commission will recommend something similar to the Senate resolution.

Drug testing for benefits

• Bill: Senate Bill 182

• Summary: The bill would create a three-county pilot program that requires drug testing for welfare recipients who fail an initial screening.

• Status: The proposed legislation was assigned to the Senate Medicaid, Health and Human Services committee, where it awaits a vote.

Human trafficking

• Bill: House Bill 130

• Summary: The bill, called the “End Demand Act,” would increase penalties for johns who solicit sex from minors and people with developmental disabilities. The proposed legislation also would protect victims’ sexual history in court proceedings and allow termination of parental rights if someone sells their children for sex.

• Status: The bill passed the Ohio House 98-0 in late June. It was sent to the Senate Criminal Justice committee, where it awaits hearings.

Energy efficiency and renewable fuels

• Bill: Senate Bill 58

• Summary: The bill would loosen a 2008 law that requires electricity utilities to help consumers use energy more efficiently and generate an increasing portion of the state’s electricity through renewable fuels, some of which must come from Ohio sources. Supporters claim energy efficiency and renewable mandates make everyone’s bills higher for the profit of the green energy industry, while critics of the proposal point to a requirement in the law that says energy-efficiency projects must save consumers money to be approved.

• Status: SB 58 stalled in committee, but Ohio Senate President Keith Faber recently said the rules will “adversely impact” the Ohio economy and at the same event Kasich suggested that “if we have to delay some of the implementation (of the law) for a couple years, that’s fine.”